Long-Term Stock Portfolio: Best Stocks for 20 Years
In this piece, we will take a look at the best stocks for the next 20 years. For more stocks on this list, head on over to Long-Term Stock Portfolio: 5 Best Stocks for 20 Years.
The world of investments is not for those that are prone to panicking easily. Over a few years, stocks previously believed to be impervious to typical market downturns have experienced significant declines, only to rebound briefly before facing further declines. At the center of this whirlwind, lies the Federal Reserve’s primary policy tool: interest rate hikes. The Federal Reserve raises interest rates to slow the amount of money circulating through the economy and drive down aggregate demand. With higher interest rates, there should be lower demand for goods and services, and the prices for those goods and services should fall as a consequence. Of course, the Federal Reserve doesn't always increase its interest rates in a linear fashion. Following a streak of 10 consecutive meetings where rates were increased, occasionally by as much as three-quarters of a point per meeting, the Fed decided to forgo the June gathering. In this environment, investors are currently anticipating a resumption of rate hikes in July, with the possibility of the Fed assessing the need for additional increases during alternate sessions, a pace that has been observed in previous periods of tightening.
The discussion around a potential economic recession has resurfaced with the participation of another Federal Reserve official in the debate over future interest rate increases. Mary Daly, the President of the San Francisco Federal Reserve Bank, expressed in an exclusive interview with Reuters that there is a genuine possibility of two additional interest rate hikes occurring within the remainder of this year. In contrast to the previous year, where the risk of uncontrollable inflation outweighed the risk of excessively slowing down the economy, the current situation presents a shift in risks. Now, the risks lie in the potential consequences of taking too little action on interest rates compared to the risks associated with taking too many measures. According to Daly, her community advisory council and other business contacts have consistently expressed their concerns regarding two major issues: persistently high inflation and ongoing labor shortages. The personal consumption expenditures index, the Federal Reserve's preferred measure of inflation, currently stands at 4.4%. Although this is a decline from the peak of 7% observed last summer, it still remains more than double the Fed's target of 2%. Additionally, the unemployment rate has slightly increased to 3.7%, which remains lower than the 4% rate estimated by Fed policymakers
Long-term investment in the stock market is arguably the most reliable method to grow your wealth. Long-term investors disregard the volatile fluctuations of stock markets that occur in the short term. Instead of being entangled in the theatrics, they choose to invest in the stocks of established companies known for their consistent and enduring performance, spanning years, or perhaps even decades. By adopting this approach, investors can shield their investments from temporary headwinds, such as the ones witnessed during the economic downturn of the previous year. As an example, the Nasdaq Composite index experienced a steep decline of 33% in 2022. Nevertheless, due to the alleviation of inflationary pressures, the index has surged by 29.9% year-to-date, resulting in a remarkable 79.65% growth over the past five years, despite recent adversities. As a consequence, investors who withdrew their investments during the market lows of 2022 will miss out on the gradual rebound witnessed this year.
With these details in mind, let’s take a look at some great stocks for a long term portfolio, out of which the top picks include Meta Platforms, Inc. (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG), and Mastercard Incorporated (NYSE:MA). If you wish to see more stocks that possess long term potential, you can check out our article on the 15 Most Promising Long-Term Stocks According to Analysts.
Our Methodology
In order to compile our selection of top long-term stocks, we began by analyzing the stock portfolios of several prominent long-term investors, including value investor David Abrams, Baupost Group's Seth Klarman, and Wall Street legend Warren Buffett. We then chose the stock holdings that have remained within some of their portfolios for 5 years or more. Next, we assessed the number of hedge fund investors associated with each stock based on Insider Monkey's survey of 943 funds during the first quarter of this year. Using this information, the stocks were ranked.
10. Lithia Motors, Inc. (NYSE:LAD)
Number of Hedge Fund Holders: 37
Lithia Motors, Inc. (NYSE:LAD) is an American nationwide automotive dealership group headquartered in Medford, Oregon. The third largest new vehicle automotive dealership group in the United States, the company offers a diverse array of services that encompass the purchase of both new and pre-owned vehicles, various vehicle financing alternatives, warranties, insurance plans, theft protection services, as well as comprehensive automotive repair and maintenance solutions. Lithia Motors, Inc. (NYSE:LAD) has been part of value investor David Abrams portfolio since Q2 2018, signifying his trust in the stock's long-term viability.
On April 19, Lithia Motors, Inc. (NYSE:LAD) declared a $0.50 per share quarterly dividend, a 19% increase from its prior dividend of $0.42. The dividend was paid on May 26, to shareholders of record on May 12.
As of the March quarter of 2023, 37 hedge funds in Insider Monkey’s database reported having stakes in Lithia Motors, Inc. (NYSE:LAD), compared with 40 in the previous quarter. The consolidated value of these stakes is roughly $1.7 billion.
Right Tail Capital mentioned Lithia Motors, Inc. (NYSE:LAD) in its Q1 2023 investor letter. Here is what the firm has to say:
“The original research premise fit right into Right Tail’s wheelhouse: a set of good businesses trading at attractive long-term valuations. Valuations look inexpensive at mid to high single digit multiples of earnings. Historically, these businesses have traded at 10-15x P/E multiples despite having more leverage and holding more inventory than they do today. In some ways, the historical multiples feel appropriate given their delicate relationships with manufacturers and cyclicality; on the other hand, these businesses have produced solid mid-teens returns with attractive reinvestment opportunities suggesting they are better than average companies. Adding another wrinkle to the puzzle, these businesses have over-earned the last few years due to Covid (car shortages, consumers flush with cash, etc.).
As I began the work, the compelling return potential warranted additional research. Lithia Motors (LAD), for example, has laid out a 2025 earnings per share target of $55-60. If the company reaches $55 in earnings and trades at a 12x P/E, we’d have a stock price of $660 – this would be a triple from today’s prices and produce a ~45% IRR over 3 years. The businesses are also producing lots of cash currently (LAD has earned ~$40 per share the last few years) creating additional capital allocation optionality.”
Much like Meta Platforms, Inc. (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG), and Mastercard Incorporated (NYSE:MA), Lithia Motors, Inc. (NYSE:LAD) is a top long term stock finding favor with hedge funds.
9. Moody’s Corporation (NYSE:MCO)
Number of Hedge Fund Holders: 51
Moody's Corporation (NYSE:MCO), often referred to as Moody's, is an American business and financial services company. It is the holding company for Moody's Investors Service (MIS), an American credit rating agency, and Moody's Analytics (MA), an American provider of financial analysis software and services. Moody's Corporation (NYSE:MCO) has been a part of legendary value investor Warren Buffett's portfolio for over 12 years.
On May 17, Jeffrey Silber, an analyst at BMO Capital, reaffirmed an Outperform rating for Moody's Corporation (NYSE:MCO) stock while raising the target price from $355 to $360. Silber believes that Moody's Corporation (NYSE:MCO) has the potential for a significant upside of more than 16% based on the closing stock price as of May 18.
By the end of Q1 2023, 51 of the 943 hedge funds profiled by Insider Monkey had bought a stake in Moody's Corporation (NYSE:MCO). A major hedge fund investor is Chris Hohn's TCI Fund Management with a $3.17 billion stake.
8. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 61
Founded in 1892, The Coca-Cola Company (NYSE:KO) is an American multinational corporation recognized primarily for its production of Coca-Cola. Beyond its flagship beverage, the company engages in the manufacturing, sales, and marketing of a diverse range of non-alcoholic beverage concentrates, syrups, and even alcoholic beverages within the beverage industry. The Coca-Cola Company (NYSE: KO) stands as one of the largest beverage corporations in the world and holds a noteworthy place among the longstanding investments of legendary value investor Warren Buffett. Buffett, who has held a stake within the company since 2010, has famously expressed his unwavering commitment to retain the company's shares.
On April 26, The Coca-Cola Company (NYSE:KO) declared a quarterly dividend of $0.46 per share, which was in line with its previous dividend. The stock’s dividend yield on June 28 came in at 3.04%.
According to Insider Monkey’s first quarter database, 61 hedge funds were bullish on The Coca-Cola Company (NYSE:KO), compared to 58 funds in the preceding quarter. Warren Buffett’s Berkshire Hathaway is the biggest stakeholder of the company, with 400 million shares worth $24.8 billion.
Rowan Street Capital mentioned The Coca-Cola Company (NYSE:KO) in its Q4 2022 investor letter. Here is what the firm has to say:
“Let’s take The Coca-Cola Company (NYSE:KO) for example. Its dividend yield is 2.8%, earnings are estimated to grow at only 3.6% rate per year over next 4 years, and its earnings multiple is currently at 24x (based on next year’s forecasted earnings). KO has an anemic growth, so we can argue that paying 24x earnings is not very attractive. Let’s assume that the multiple will stay constant over the next 3-5 years, thus our expected annual returns will be 2.8%+3.6% = 6.4% (that is below the current reported inflation rate and only slightly above the risk-free rate of 4%).”
7. American Express Company (NYSE:AXP)
Number of Hedge Fund Holders: 77
American Express Company (NYSE:AXP) is an American multinational financial services corporation that specializes in payment cards. Headquartered in New York City, it is one of the most valuable companies in the world and one of the 30 components of the Dow Jones Industrial Average. A premium company that has a 30-year run of paying regular dividends to shareholders, American Express Company (NYSE:AXP) company declared a quarterly dividend of $0.60 per share on May 3, the same as in the previous quarter.
According to Insider Monkey's database of 943 hedge funds, we discovered that 77 had invested in American Express Company (NYSE:AXP) in the first quarter of 2023. Warren Buffett’s Berkshire Hathaway owns a $25 billion stake in the company that comes via 151 million shares as of Q1 2023. One of the mainstays of Warren Buffett’s portfolio, with Buffett stating that the stock will remain a part of his portfolio permanently, the hedge fund initiated a stake in American Express Company (NYSE:AXP) in Q4 2010 at an average quarterly share price of $42.19.
6. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 86
Johnson & Johnson (NYSE:JNJ) is an American multinational corporation founded in 1886 that is known for developing medical devices, pharmaceuticals, and consumer packaged goods. The pharmaceutical company has been raising its dividends consistently for the past 62 years, and currently pays a quarterly dividend of $1.19 per share with a dividend yield of 3.09%, as of June 28.
By the end of 2023’s first quarter, 86 of the 943 hedge funds part of Insider Monkey’s database had held a stake in the healthcare company. Johnson & Johnson (NYSE:JNJ)’s largest hedge fund investor is Ken Fisher’s Fisher Asset Management with a $967 million stake.
Johnson & Johnson (NYSE:JNJ) ranks among the likes of Meta Platforms, Inc. (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG), and Mastercard Incorporated (NYSE:MA) as a decent stock for long term investments.
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Disclosure: None. Long-Term Stock Portfolio: Best Stocks for 20 Years is posted on Insider Monkey.
